By Jim Ludwick
Now you might recall, I’ve labeled myself as the Andy Rooney
of financial blogging. So here’s another
piece in that particular style.
I’m uncomfortable about a number of issues that affect
financial consumers. Here’s some and
here’s why.
1.
Target
Date funds being used for the wrong reason.
These fund of funds that automatically become less stock and more fixed
income as time progresses are supposed to be an easy and sometimes are a
default for 401k/403b retirement accounts.
What’s wrong you ask? Investors
(yes, if you have a 401k plan, you are an investor) in many cases don’t look at
the underlying asset allocation (stock to bond ratio) to see how volatile it
might be, especially in a down market.
I would argue that the ratio is more important than the target date,
which can be quite arbitrary.
2.
More
online investment managers using cookie cutter portfolios. Venture capitalists are funding these
efforts left and right. I participate in
two of them for research purposes so I can know what I’m talking about and am
prepared with a response when I’m asked about them. When the VC boys and girls are throwing money
at things, they smell profit. At who’s
expense, you might ask? So far the jury
is out and these investment programs may have a place, but I don’t see how they
can manage an individual or family investment strategy when they only manage a
portion. Too easy for overlap or
concentrations.
3.
SEC
fails to hold brokers to a higher standard.
For awhile I thought the consumer was going to reap the benefit of
Dodd-Frank insisting that the financial services industry put the customer
first, before profit. It’s not working
out that way so their still buyers beware.
Just Google: “Favorite Brokerage Company Name followed by the word
Fines.” Have fun; the best customers
seem to get the worst treatment.
4.
Online
statements being pushed. It’s easier
to neglect to review transactions, fees and other details when it’s not in a
paper format. It’s that smaller typeface
and bunching together that facilitate the difficulty of review. That’s what
we’re seeing and it’s a worrying pattern.
There are benefits to online statements, don’t get me wrong, but it’s
not helping detect problems like it was when clients had paper statements.
5.
Discount
brokers selling more stuff to customers.
Yes, it’s the good old-fashioned competition gig. “Once we get you in the door, what else can
we sell you?” Amazon has this down
pat. Now discount brokers are selling
money management, financial plans, annuities, and all kinds of insurance. The do-it-yourselfers are under attack with
every phone call. How do I know? I have
accounts at most of the discount brokers and experience it personally. It’s not all bad, but one stop shopping has
its downsides. You may not be getting
the best deal or even need that deal.
There are more trends out there I don’t like, but that’s my
current top five. How about you? I’d like to hear your views on
these or other non-consumer friendly trends.